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evidence. Instead, respondent relied heavily on the economic
analysis of Clark J. Chandler (Chandler) to support respondent's
section 482 allocation. Respondent neither presented an
alternative CUP analysis nor proposed specific adjustments to
petitioner's analysis.
Chandler used two cost-plus alternatives. One, using IEC as
a cost-plus comparable, resulted in a weighted average markup on
total Compaq Asia standard costs of 15.2 percent. After he
factored in accounting differences between Compaq Asia and IEC,
the result was a weighted average markup on Compaq Asia standard
costs of 6.5 percent. Based on an analysis of operating margins
and operating profits as a percent of average operating assets,
as well as on an analysis of operating assets divided by total
assets, Chandler concluded that respondent's determination was
reasonable. He also used underlying data from IEC to determine
weighted average CUP/cost-plus markups over Compaq Asia total
standard costs of 12.2 percent for 1991 and 14.2 percent for
1992.
Chandler, however, used unrealistic material, labor, and
overhead markups in applying his formulas. If markups in the
range of industry markups are used, the results of Chandler's
analysis bear no recognizable relation to respondent's notice
amounts. As set forth below, petitioner's CUP analysis
establishes an arm's-length price for PCA purchases by Compaq
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